July 6 (Bloomberg) -- German industrial output rebounded
more than economists forecast in May as construction buttressed
Europe’s largest economy against the sovereign debt crisis.

Production rose 1.6 percent from April, when it dropped 2.1
percent, the Economy Ministry in Berlin said today. Economists
forecast an increase of 0.2 percent, the median of 36 estimates
in a Bloomberg News survey shows. Production was unchanged from
a year earlier when adjusted for working days.

The European Central Bank cut interest rates to a record
low yesterday as the worsening debt crisis threatens to tip the
euro area, Germany’s largest export market, into recession.
While German business and investor confidence have slumped amid
signs growth is slowing, record-low unemployment and demand from
outside the region have helped insulate the economy. Factory
orders unexpectedly rose 0.6 percent in May, the Economy
Ministry said yesterday.

“German factories are still doing quite well, but we’ll
see some skid marks as a result of the euro region’s debt crisis
in the coming months,” said Andreas Scheuerle, an economist at
Dekabank in Frankfurt. “In the euro area, everything points
toward recession and the global economy has slowed to an extent
that it can’t compensate for the weakness in Europe.”

Spanish industrial production fell for the ninth month in
May as the recession in the euro area’s fourth-largest economy
worsened amid rising borrowing costs. Output at factories,
refineries and mines fell 6.1 percent from a year earlier, after
an 8.3 percent decline in April, the National Statistics
Institute in Madrid said today.

Stocks Drop

European stocks declined for a third day, with the Stoxx
Europe 600 Index down 0.3 percent to 256.12 at 12:15 p.m. in
Frankfurt.

German manufacturing output gained 1.8 percent in May,
driven by a 3.8 percent jump in production of consumer goods,
today’s report showed. Investment goods production rose 1.7
percent and construction activity was up 3.1 percent.

Construction gained 7 percent over April and May compared
with the previous two months, the ministry said. “Overall, the
chances for a stable second quarter in the industrial sector
have improved, despite ongoing risks from the euro area,” it
said in a statement.

‘More Difficult’

German carmakers Porsche SE and Volkswagen AG are likely to
report increased vehicle deliveries this year, though “the
second half of 2012 is certain to become more difficult and
challenging for the automotive industry as a whole,” Chief
Executive Officer Martin Winterkorn said on June 25.

Siemens AG Chief Financial Officer Joe Kaeser indicated on
June 26 that it will be more difficult to meet financial targets
set for 2012 as demand tapers off at some industrial automation
units and Chinese growth fails to pick up.

In the euro area, there are signs of “a renewed weakening
of economic growth and heightened uncertainty,” ECB President
Mario Draghi said yesterday after policy makers cut the
benchmark interest rate to 0.75 percent and the deposit rate to
zero.

“We still expect a gradual, slow recovery around the end
of the year,” Draghi said. “The baseline scenario hasn’t
changed, although the downside risks are now materializing.”

Euro-area economic confidence slumped to the lowest in more
than 2 1/2 years in June, services and manufacturing output
contracted for a fifth month and unemployment rose to a record
in May. The European Commission predicts the 17-nation economy
will contract 0.3 percent this year.

U.S. Jobs

In the U.S., the Labor Department will release its monthly
jobs report at 8:30 a.m. in Washington. Private jobs increased
by 106,000 and total non-farm payrolls climbed 100,000 in June,
according to a Bloomberg survey of economists. The jobless rate
probably held at 8.2 percent, another survey projected.

China’s central bank yesterday cut benchmark interest rates
for the second time in a month and allowed banks to offer bigger
discounts on their borrowing costs, stepping up efforts to
reverse a slowdown in the world’s second-biggest economy.

Chinese export growth slowed to 10.5 percent in June from a
year earlier compared with 15.3 percent in May, according to the
median estimate in a Bloomberg survey of economists. That report
is due on July 10.

“The global economy is very linked together and there is
weakness around the world, in Europe of course, spilling to Asia
and the U.S.,” Stephen Roach, a professor at Yale University
and former non-executive chairman for Morgan Stanley in Asia,
told Susan Li on Bloomberg Television’s “First Up.” “The
European economy is in recession” and further ECB rate cuts
aren’t “going to change this outcome.”